Providing Statutory Status to Minimum Support Price (MSP): Its Pros and Cons in the Context of Indian Agriculture

Context: This editorial is based on the news “The question of MSP: Is income support for farmers better than pricing that is delinked from market demand?” which was published in the Indian Express. As the Lok Sabha elections approach, there could be a clamour for parties to include “legal guarantee for MSP” in their manifestos.

The Challenge of Price Setting: Farmers as Market Participants

Farmers’ Struggle in Buyer’s Market

• Farmers grapple with operating in a buyer’s market, leading to sudden supply surges compared to demand, resulting in downward price pressure.

Price Takers, Not Makers

• Farmers lack the market power to influence crop prices, functioning as price takers rather than price makers, and are unable to set Maximum Retail Prices (MRP) like other industries

Also Read: Cabinet Raises MSP For Six Rabi Crops

Providing Statutory Status to Minimum Support Price (MSP): Its Pros and Cons

Pros:

• Assures minimum income and price protection to farmers  Incentivizes production of crops important for food security 
• Shields farmers from exploitation by middlemen 

Cons: 

• Distorts crop patterns & input use towards MSP crops 
• Increases fiscal burden due to higher procurement 
• Hurts crop diversification as focus skews to wheat and rice       

Price Deficiency Schemes: Their Pros and Cons

Pros: 

• Provides MSP assurance without market distortion 
• Retains price signals linked to demand-supply dynamics 
• Lower costs than direct procurement 

Cons: 

• Requires strong digital infrastructure for farmer eligibility 
• Crop coverage depends on fiscal capacity of states 
• Delays in payments possible without monitoring             

Direct Income Support: Its Pros and Cons

Pros:

• Insulates against income instability for all farmers 
• Allows aligned production as per markets 
• Simple transfer mechanism 

Cons: 

• Fixed amounts may be inadequate for many farmers 
• Not linked to crops prices or cultivation costs 
• Absentee landowners also benefit 

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